By participating in a federal subsidy program, St. Louis County will save some $5 million in interest over the life of roughly $119 million in bonds sold recently to finance an emergency communications project, officials projected last week.
The county on March 23 sold a total of $119,235,000 in bonds through competitive bidding — $60,560,000 in tax-exempt special obligation bonds and $58,675,000 in taxable Build America Bonds, or BABs — for an effective interest rate of roughly 3.54 percent, according to administration officials.
The bonds, which have maturity dates from 2012 through 2035, will fund the construction and operation of a new countywide emergency communications system.
Proceeds from the sale will be available to the county on April 15. The bond debt will be repaid using revenues from an 0.1-percent sales tax voters approved in November as Proposition E-911.
“We were very pleased with the activity we got and the fact that we got so many bidders,” Director of Administration Pamela Reitz said.
Six bids were submitted for each of the two bond series issued. The first series — tax-exempt special obligation bonds — was sold to Jefferies & Co. The firm’s true interest cost of 3.242199 percent was the lowest of the six bids submitted for the tax-exempt bonds.
The second bond series — the taxable BABs — went to Morgan Keegan, which bid the lowest true interest cost of the six bids submitted, 5.587091 percent.
Under the BAB program, the federal government provides issuers with a 35-percent subsidy for each interest payment.
The county would see an interest savings of roughly $5 million over the life of the bonds by participating in the BAB program, Reitz said.
While the county entered the bond market March 23 offering $121,260,000, that amount was reduced to $119,235,000 after the sale because bidders offered more up front for the bonds in exchange for higher interest rates later, said Jeff White of Columbia Capital Management, the county’s financial adviser.
“The reason that the par size is different is because we had on one series of bonds, we had bidders that agreed to give us more than $100 for $100 in bonds today in exchange for a higher interest rate over the life of those bonds, what are called premium bonds,” White told County Council members during a caucus last week.
“So because we got more than $100 for $100 in bonds, we had more money come from the dealer than we needed to fund the project so we reduced the size of the bond issue. It’s like having an additional source of funds.”
The council last week granted final approval to legislation authorizing the issuance of not to exceed $130 million in bonds, which White has said was done to give investors flexibility.
“We also would have allowed bidders to give us $98 or $97 for $100 worth of bonds in exchange for a lower-than-market interest rate over that period of time, which would’ve made the size of the deal larger,” he said. “We would’ve had to issue more debt in order to cover the project cost, but at a lower rate. It all comes out in the wash with the bond math.”
Following last week’s bond sale, officials learned the county had earned an Aa1 credit rating from Moody’s Investors Service for the transactions, up from its previous rating of Aa2, Reitz said.
